CUSTOMER_CODE
SMUDE
DIVISION_CODE
SMUDE
EVENT_CODE
SMUAPR15
ASSESSMENT_CODE MB0045_SMUAPR15
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
9547
QUESTION_TEXT
What is capital budgeting decision? Highlight its types
SCHEME OF
EVALUATION
Meaning of capital budgeting: Capital budgeting is a blue–print of
planned investments in operating assets. Thus, capital budgeting is
the process of evaluating the profitability of the projects under
consideration and deciding on the proposal to be included in the
capital budget for implementation.
Types:
●Decision to replace the equipments for maintenance of current level
of business or decisions aiming at cost reductions, known as
replacement decisions
●Decisions expansion through improved network of distribution or
on expenditure for increasing the present operating level
●Decisions for production of new goods or rendering of new services
●Decisions on penetrating into new geographical area
●Decisions to comply with the regulatory structure affecting the
operations of the company, like investments in assets to comply with
the conditions imposed by Environmental Protection Act
●Decisions on investment to build township for providing residential
accommodation to employees working in a manufacturing plant
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
73184
QUESTION_TEXT
What are the factors affecting capital structure? Also explain the
feature of an Ideal capital structure?
Features of an Ideal Capital Structure
a.
b.
c.
d.
SCHEME OF
EVALUATION
Profitability
Flexibility
Control
Solvency 1 each
Factors Affecting Capital Structure
1.
Leverage 2M
2. Cost of capital
3. Cash flow projections of the company
4. Dilution of control
5. Floatation costs
1M each with explanation
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
125906
QUESTION_TEXT
Explain Economic Order Quantity. What are the assumptions of
EOQ?
Economic order quantity (EOQ) refers to the optimal order size that
will result in the lowest ordering and carrying costs for an item of
inventory based on its expected usage, carrying costs and ordering
cost.
EOQ is defined as the order quantity that minimises the total cost
associated with inventory management.
(4 marks)
EOQ is based on the following assumptions:
Constant or uniform demand – The demand or usage is even
through-out the period.
SCHEME OF
EVALUATION
Known demand or usage – Demand or usage for a given period is
known i.e. deterministic.
Constant unit price – Per unit price of material does not change and
is constant irrespective of the order size.
Constant carrying costs – The cost of carrying is a fixed percentage
of the average value of inventory.
Constant ordering cost – Cost per order is constant and is not
affected by the size of the order.
Inventories can be replenished immediately as the stock level
reaches exactly equal to zero. Constantly there is no shortage of
inventory.
(1 mark each)
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
125909
QUESTION_TEXT
Write a short note on Net Income approach and net Operating
Income approach.
Net Income approach explanation and formula
SCHEME OF
EVALUATION
Net Operating Income approach
explanation and formula
(5 marks)
(5 marks)
QUESTION_TYPE DESCRIPTIVE_QUESTION
QUESTION_ID
125911
Mr. Madan invests Rs. 500, Rs. 1000, Rs. 2000 and Rs. 2500 at the end of
each year for 5 years. Calculate the value at the end of 5 years
QUESTION_TEXT
compounded annually if the rate of interest is 5 % p.a.
SCHEME OF
EVALUATION
End
of
year
1
Amount
invested
(Rs.)
500
Number of
years
compounded
4
Compounded
FV in
interest factors
Rs.
from tables
1.216
608
2
1000
3
1.158
1158
3
1500
2
1.103
1654
4
2000
1
1.050
2100
5
2500
0
1.000
2500
Amount at the end of the fifth year is Rs. 8020
8020
The value at the end of the fifth year is Rs. 8020
QUESTION_TYPE DESCRIPTIVE_QUESTION
QUESTION_ID
160424
QUESTION_TEXT
Describe the role of the finance manager in the mobilization and
deployment of funds for an organization.
(5 + 5 = 10 marks)
SCHEME OF
EVALUATION
Mobilization of Funds for the Firm: The Finance Manager has to
plan for and mobilize the required funds from various sources when
they are required and at an acceptable cost. This decision is called the
Financing Decision. For this purpose he would be liaising with banks
and financial institutions. He also deals with merchant banking
agencies for procuring funds from the public through issue of shares,
debentures and inviting the public to subscribe to its fixed deposits. In
deciding how much to procure from various sources, he would weigh
many considerations like the cost of the funds in the form of
interest/dividend and the cost of public issue in the case of shares and
debentures, the length of time for which funds would be available,
etc. Banks and other financial institutions which give short-term and
long-term loans generally lay down some conditions. These
conditions are aimed at ensuring the safety of the loans given by them
and contain provisions restricting the freedom of the borrower to raise
loans from other sources. Therefore, the Finance Manager would try
to balance the advantages of having funds available with the costs and
the loss of flexibility arising from the restrictive provisions of the loan
contract.
Deployment of Funds: There are always many competing needs for
the allocation of funds. In consultation with the managers of various
departments such as production, marketing, personnel, R & D and the
top management, the Finance Manager decides on the manner of
deployment of funds in various assets such as land, buildings,
machinery, materials, etc. Sometimes the managers of the various
departments named above constitute an ‘Investment Committee’ and
appraise an investment proposal along the marketing, technical and
financial dimensions. The Finance Manager appraises the proposal
along the financial dimensions to determine its worthiness in relation
to the investment involved. This decision called the ‘Investment
Decision’ constitutes one of the core activities of the Finance
Manager.